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10. Stock J has a beta of 1, an expected return of 15%. The equity risk premium is 10%, and the risk-free rate is 2.5%. Calculate Jensen's alpha measure for Stock J. (a) 2.5% (b)-2.5% (c) 0% (d) -7.5%

10. Stock J has a beta of 1, an expected return of 15%. The equity risk premium is 10%, and the risk-free rate is 2.5%. Calculate Jensen's alpha measure for Stock J. (a) 2.5% (b)-2.5% (c) 0% (d) -7.5%

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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10. Stock J has a beta of 1, an expected return of 15%. The equity risk premium is 10%, and the risk-free rate is 2.5%. Calculate Jensen's alpha measure for Stock J. (a) 2.5% (b) -2.5% (c) 0% (d) -7.5%
Transcribed Image Text:10. Stock J has a beta of 1, an expected return of 15%. The equity risk premium is 10%, and the risk-free rate is 2.5%. Calculate Jensen's alpha measure for Stock J. (a) 2.5% (b) -2.5% (c) 0% (d) -7.5%
Expert Solution
Step 1

The formula for the Jensen's alpha measure is given by, 

Jensen's alpha = r –[rf + β ×(rm–rf)] 

Where, 

r = Expected return, 

rf = Risk-free rate, 

(rm – rf) = Equity risk premium, 

β = beta of stock. 

 

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